A credible nominal anchor
A)can help overcome the time-inconsistency problem by providing an expected constraint on discretionary policy.
B)can help to anchor inflation expectations,which leads to smaller fluctuations in inflation.
C)is required for a policy rule.
D)all of the above.
E)both A and B.

Question

Quizplus · Accepted Answer

A credible nominal anchor can indeed help overcome the time-inconsistency problem by providing a constraint on discretionary policy and can anchor inflation expectations, leading to smaller fluctuations in inflation. While a nominal anchor can be part of a policy rule, it is not a requirement for all policy rules, making options A and B correct but not C.

A Credible Nominal Anchor